The use of information systems in retailing is often overlooked, yet these systems provide retailers with extremely valuable tools to help them succeed in the ever changing modern retail environment.
Having the proper retail information system in place allows retailers to gain valuable insights and actionable data across all retail functions, from inventory and supply control systems, to shipping and logistics, to employee and customer management, to sales targets and budgeting, and much much more.
The key thing to keep in mind when looking at information systems in retail, is that very rarely is all retail information stored in one place, but instead information comes from a variety of hardware, software, and other tools, used by retailers. Retail information systems are what connects these various sources of information to provide informative insights to management and business owners.
In this article, we we will cover:
An information system in retailing takes data from a variety of different sources and centralizes this data for use by the retailer.
For example, supplier data, like how much was paid wholesale for an item, may come from a retail purchasing system; commission paid to employees for selling the item, as well as final sales price (after discounts) may come from a retail POS system; who bought the item may come from a retail customer relationship management (CRM) system; and profit may be calculated using all of the aforementioned in the accounting system of the retailer.
Put simply, in this example, a question like: How much profit did I make selling this item? can only be answer by making sure the information from the supplier purchasing system (how much did I pay), and the POS system (how much did the customer pay - less overhead/commissions), are connected to the accounting system of the retailer.
The importance of an information system in retailing is derived from the actionable business data it can provide. By efficiently managing retail information, decision makers can decide where to best spend their money, and to gauge the efficiency of their spend.
There are a wide range of individual systems and data points that a retail information system can provide, for example: whether purchasing larger inventory quantities for volume discounts will be beneficial based on sales volume; whether or not to discount items to free up cash and reduce dusty inventory; to how effective marketing efforts have been to driving additional sales; to forecasting future cash flows of the business; and more.
Retail information systems are used to take whatever systems a retailer has in place, even if it is just a POS and an accounting software, and to get relevant or needed information from them.
In this example, if you want to know how much you sold last month (POS information), as well as total costs for the month including rent (accounting system), in order to calculate your profits or losses, the process of getting data from both systems relies on them being able to communicate with each other.
Keep in mind that when it comes to how information systems are used in the retail setting, the key to success is making sure that managers and owners can get the information they need quickly and easily, not just the sheer amount of information available.
There are a multitude of different systems that comprise a retail information system, often with each component being its own standalone information system as well as part of the greater company information system as a whole.
Below we will go through some of the most common components of a retail information system:
Barcoding systems in retail store valuable information about items ranging from price, to size, to quantity in stock when combined with the inventory management system.
Prior to the invention of the retail barcode, retailers had to use price tags as the main way to track how much to sell their items for, and would then go around their store with a price gun to change prices any time they wanted to discount stock.
Barcode retail information systems allow businesses to track how many of an item they have in stock, which supplier can provide them with more stock if needed, the price of the item, as well as any other individual item information. To process this information however, a retail inventory management system is needed.
Retail inventory management systems help retailers to gain information on all stock they have at any given point in time, as well as inventory velocity (how fast or slow items are selling) so that they can plan for additional purchase orders directly from suppliers, or use aggressive discounting to get rid of inventory that is not selling.
These systems are built to automate the inventory procurement process, and to make sure that retailers always have the right amount of stock on hand. Not having the right amount of stock can mean missing out on sales, while too much stock on hand means cash is tied up in COG inventory.
Inventory management systems work hand in hand with POS systems, often with the POS system working as the inventory management system as well.
When it comes to information systems, by far the most important component is the retail POS system. The POS system provides information on all sales transactions that have taken place at the business, and often facilitates the flow of information between all systems.
What was sold, by who, for how much, whether there is any stock left, ordering of new inventory, and more can all be handled from within the POS system. Further most POS systems can be used to manage employees, as well as customers in order to drive future sales for the store.
Customer data is some of the most important information a retailer can have, both for marketing purposes, but also for understanding who buys from them and who their target audience is. This can lead to better advertising (if your audience is younger, maybe you will advertise on TikTok instead of LinkedIn) and more sales (through 1:1 promotion campaigns for example).
Better still, retailers who understand their customers will be able to more accurate forecast future sales, identify trends that might affect sales, and even set prices more inline with the ability of their customer to spend.
Information systems regarding retail employees are more complex than just who is working when, or how many employees will be on the sales floor at a given time. Tracking who your best sellers are, how much commission is owed, what times of day you need more employees, and more, are just some of the useful pieces of information that employee management systems can provide your store.
Getting these insights easily so they can be actioned on are important for any retail information system process.
A retail accounting system measures the pulse of your business. If costs are greater than revenue, you might be in trouble.
That is why it is important to keep track of all costs, from shipping and transport fees, COGS, taxes, employee costs, rent or mortgage on your store locations, or any other cost inputs are very important to have transparency into your store health.
At the same time you need to know how much you are selling, what the value of your inventory is, and more to make sure you are not bleeding money somewhere without being aware.
That is why your retail accounting system needs to sync well with the rest of your retail information system. Without it you may be flying blind.
As you start to gather a lot of this information in one place, you will be able to estimate things like what a change in price would do to demand. Or which months you might expect to see more sales and which you need to do some promotions to reduce sales decline.
All of this information can be pulled into your information system to achieve accurate forecasts of potential future results.
Supply chain systems are another key component to any information systems in retail, as they allow you to determine what goods you can sell at your store, as well as the time it will take to get them from the manufacturer in the first place, as well as restock time once supply is low.
Last but not least is where you will store your items, which items will get prime placement in your store, which ones will fill your back room, and which ones should be stored in the warehouse for future sales.
Good storage and warehousing systems will let you know when to bring inventory from your warehouse to your store, and vice-versa. This is also very useful if you have a warehouse for goods that you sell online, or that are too large to sell in store (like furniture, etc.).
These are not all of the components that can be part of an information system for retail, nor will all stores have all these systems in place. Regardless however, if you have multiple systems, even just a POS and accounting system, you want to make sure they integrate well together.
Absolutely, retailers of any size can benefit from retail information systems.
Even if you only have a few data points, like an inventory system with 5 items, you still can benefit from getting data on what colors or sizes are most frequently bought at your store. Sure, you should not focus on spending thousands or tens of thousands on an information system, but what data you have should be made readily available to you or other managers.